In this week's invited contribution, Emanuele Schibotto* asks if China's "state capitalism" is in crisis.

In 2010, Ian Bremmer's book, The End of the Free Market: Who Wins the War Between States and Corporations?, drew international public attention to the concept of 'state capitalism', which was widely studied during the first half of Twentieth century but vanished from the end of the Second World War. 'State capitalism' then saw new life when the Chinese leadership decided to rethink its development model in 1978. For three decades this model delivered extraordinary economic growth, but now it is being severly tested.

Ian Bremmer defines 'State capitalism' as “a match in which governments control most of the referees and enough of the players to improve its chances of determining the game's outcome”. Such a system combines great openness towards international trade and markets with a strong political leverage on domestic economy.

Bremmer argues that the Chinese model is not only bearing fruits at home, but it is also gaining ground abroad, with the risk of becoming an example for other developing nations - therefore greatly harming the attractiveness of the Western capitalism model. From Africa to the Middle East to Latin America, Beijing is ever more considered a reliable business partner and a successful alternative to the economic liberalism preached by US.

If we look at economics, the Chinese powerhouse is most likely to keep growing in the long run, as The Economist recently pointed out. However, if we take a look at politics the situation looks grim. Even though understanding and describing Chinese politics is no easy task, two recent episodes make it quite manifest that the Communist Party is undergoing a moment of deep stress, which could hold structural features.

What happened to former Politburo member Bo Xilai, sacked by the Communist Party with accusations of impeding a corruption investigation involving his family, highlights a harsh power struggle among the leadership which exposes the party to public accusations of corruption and misgovernment.

The story of Chen Guangcheng, the blind rights acvist who escaped from illegal house arrest to the U.S, points out the growing troubles the Party is having in managing dissent. Just think that on average every year around 100,000 mass protests are estimated to take place in China, generating “domestic stability maintenance” costs of roughly $100 billion – more that the national defence budget.

In a Wall Street Journal article, academic Minxin Pei writes: “the party has thrived since its near-death experience in Tiananmen in 1989. Its ranks have swelled to 80 million. Its hold on power, bolstered by the military, secret police and Internet censors, looks unshakable. Yet, beneath this façade of strength lie fundamental fragilities. Disunity among the ruling elites, rising defiance of dissidents, mass riots, endemic official corruption—the list goes on. For students of democratic transitions, such symptoms of regime decay portend a systemic crisis. Based on what we know about the durability of authoritarian regimes, the Chinese Communist Party's rule is entering its most perilous phase”.

The next generation of Chinese leaders, which will assume office at the end of this year, will face not only critical foreign policy challenges such as the relationship with the USA and the diplomatic disputes Beijing with several neighboring Asian states, but they will find the handling of domestic situations ever more problematic. Italian great economist and statesman Luigi Einaudi wrote that “economic freedom is the essential condition for political freedom”. The current economic model allowed the Chinese to reach the first freedom (freedom from hunger) for the majority of the population. The years ahead will tell us if 'state capitalism' will be effective to provide the political freedom, too.

References

Bremmer, Ian (2012), The End of the Free Market: Who Wins the War Between States and Corporations?, Viking

** The author is PhD candidate in Geopolitics at the Guglielmo Marconi University in Rome. He also is Editorial Coordinator of Equilibri.net, an Italian think tank on Geopolitics and International Relations.